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Non-Parametric Bounds for Non-Convex Preferences

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  • Halevy, Yoram
  • Persitz, Dotan
  • Zrill, Lanny

Abstract

Choices from linear budget sets are often used to recover consumer's preferences. The classic method uses revealed preference theory to construct non-parametric bounds on the indifference curve that passes through a given bundle. We show that these bounds do not apply to non-convex preferences, and therefore may lead to erroneous prediction and welfare analysis. We suggest an alternative that is based on the assumption of monotonicity of preferences.

Suggested Citation

  • Halevy, Yoram & Persitz, Dotan & Zrill, Lanny, 2015. "Non-Parametric Bounds for Non-Convex Preferences," Microeconomics.ca working papers yoram_halevy-2015-23, Vancouver School of Economics, revised 16 Oct 2016.
  • Handle: RePEc:ubc:pmicro:yoram_halevy-2015-23
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    References listed on IDEAS

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    1. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
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    6. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-686, May.
    7. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    8. Halevy, Yoram & Zrill, Lanny, 2016. "Parametric Recovery Methods: A Comparative Experimental Study," Microeconomics.ca working papers yoram_halevy-2016-2, Vancouver School of Economics, revised 03 Nov 2016.
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    11. W. E. Diewert, 1973. "Afriat and Revealed Preference Theory," Review of Economic Studies, Oxford University Press, vol. 40(3), pages 419-425.
    12. repec:dau:papers:123456789/4099 is not listed on IDEAS
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    14. Francoise Forges & Enrico Minelli, 2009. "Afriat's theorem for generalized budget sets," Post-Print hal-00360726, HAL.
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    Cited by:

    1. Kunimoto, Takashi & Serrano, Roberto, 2020. "Rationalizable Incentives: Interim Implementation of Sets in Rationalizable Strategies," Economics and Statistics Working Papers 4-2020, Singapore Management University, School of Economics.
    2. Heufer, Jan & Hjertstrand, Per, 2019. "Homothetic preferences revealed," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 602-614.
    3. Pawel Dziewulski, 2021. "A comprehensive revealed preference approach to approximate utility maximisation," Working Paper Series 0621, Department of Economics, University of Sussex Business School.
    4. Yoram Halevy & Dotan Persitz & Lanny Zrill, 2018. "Parametric Recoverability of Preferences," Journal of Political Economy, University of Chicago Press, vol. 126(4), pages 1558-1593.
    5. Aguiar, Victor H. & Hjertstrand, Per & Serrano, Roberto, 2020. "A Rationalization of the Weak Axiom of Revealed Preference," Working Paper Series 1321, Research Institute of Industrial Economics.
    6. Forrest Jeffrey Yi-Lin & Tiglioglu Tufan & Liu Yong & Mong Donald & Cardin Marta, 2023. "Various Convexities and Some Relevant Properties of Consumer Preference Relations," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(4), pages 145-168, December.
    7. Metin Uyanik & Aniruddha Ghosh & M. Ali Khan, 2023. "Separately Convex and Separately Continuous Preferences: On Results of Schmeidler, Shafer, and Bergstrom-Parks-Rader," Papers 2310.00531, arXiv.org.

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    More about this item

    Keywords

    Revealed Preferences; Generalized Axiom of Revealed Preference; Partial Identification.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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